The Demand Factor

It’s early August, and already something is clear and disturbing in this presidential election we’re currently suffering through. If 2008 was the year of “hope and change” then 2012 is the year of “wait and pray.”

More than anything else, consumer demand is what creates jobs. The problem is that people aren’t buying. Consumer confidence went up slightly in the first half of July, but it’s still only two-thirds of what it was in 1985 and remains at historically low levels. Vast numbers of people are paying down debt and/or hoarding every dime they can lay their hands on.

Why? Because they’re justly terrified of some personal disaster – the loss of a job, a health problem they can’t afford, a foreclosure, even a brand new recession. And very little of what they see in this campaign is designed to reassure them about anything.

New York is a solid Democratic state, so few New Yorkers are seeing on TV what denizens of the swing states are seeing. I spend a considerable amount of time in one swing state and routinely pass through others, so I’ve seen the torrent of attack ads from both campaigns. Mitt Romney is telling people that Barack Obama is a one-man economic disaster, and Obama is telling people that Romney’s election will drive the country more or less into a depression.

So far, this approach has brought neither guy much success. Each is pretty much mired at 47 per cent of the electorate with the remaining six per cent, people like me, waiting to see and hear more campaign – just a few specifics, please, to guide in us in making a voting decision. And, as all this goes on, the economy just sputters along.

A growth in the economy of 4.1 per cent in the fourth quarter of 2011 declined to 2 per cent in the first quarter of this year and to 1.5 per cent in the second. We need quarterly growth of 2.5 per cent just to stay even.

Consumption rose only 1.5 per cent in the second quarter, down from a 2.4 per cent increase in the first three months of the year. One reason for that is the distressing fact that wages and salaries are barely keeping pace with inflation. Another negative, however, is the political campaign itself. Consumption began to drop at pretty much the same time that the attack ads began.

In large measure, almost nobody who sees the attack ads believes that either candidate can do anything to make things appreciably better anytime soon. Pretty much all Obama did in his first term was to stop the bleeding. Yeah, we’re recovering now, but just barely. Meanwhile, Romney’s plan to revitalize the economy by lowering taxes for the rich and raising them on the middle class by scrapping deductions that middle-class people depend on is unlikely to spur greater confidence on the part of consumers. Nor, incidentally, is it likely to do much for business investment.

The rich are already paying lower taxes than they have in decades, but business investment during this “recovery” has been about $1.4 trillion below where it should be, according to economists. Lower taxes aren’t spurring investment because there’s no demand on the part of consumers for anything except better politicians, and they’re not for sale to ordinary people. They’re already bought and paid for by Wall Street, the oil industry and other pressure groups with money to burn.

In short, one of the key factors in the slowing of this “recovery” is politics – the sheer, vicious nastiness of paid political speech in this presidential election year. People can’t feel confident enough to spend unless they feel some confidence in their leaders.

And, at the moment, very few people seem to have much confidence in either one of these guys.